How much should I spend on Marketing?

by Jeremy Powers on August 9, 2010

Investing in your business comes in many forms, and marketing is just one of the types of investments available.  When it comes to marketing your business, though, how much should you be spending?  A good article from SCORE says:

“Spending on marketing support—promotion, advertising and public relations—varies widely, from less than 1 percent of net sales for industrial business-to-business operations to 10 percent or more for companies marketing consumer-packaged goods.

Consumer packaged goods companies may spend 50 percent of net sales for introductory marketing programs in the first year, subsequently lowering the percentage spent to a stable 8 to 10 percent within a few years. Retail stores that advertise and promote spend an average of 4 to 6 percent of net sales for marketing support.

Often, small businesses estimate their sales revenue, cost-of-goods, overhead and salaries, and then gross profit. Anything left is considered available funds for marketing support. That’s not such a good idea. A more rational approach for setting your marketing budget is to estimate what your direct competitors spend in marketing support and then try to at least match that amount.

If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective.”

I find small businesses without a dedicated marketing person on staff tend to spend right around 5%.  Businesses with dedicated marketing staff tend to spend a little more, but with a significant amount of the budget going toward the costs of carrying the marketing staff.  Small businesses tend to be significantly more conservative than large businesses when launching a new product.  (I do not recall ever seeing a 50% spend of expected revenue to launch a new product.)

My recommendation to clients is to concern themselves primarily with return on investment, cash flow, and strategic fit.  Next we evaluate total spend, which when calculated as a percent of revenue, I am currently recommending at least 7% spend.  Exactly how much to spend varies by industry, company maturity, and long-term goals.  A properly targeted 7% spend, however, can dramatically improve your company’s sales, cash flow, and market share.

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